Direct Tax: Charitable Trust

Great question, Rahul!

To clarify:

• Section 11(1) Explanation 1, Clause 2 defines what constitutes accumulated income for a charitable trust—basically income that is not applied for charitable purposes during the year and is set aside or accumulated for future application.

• Section 11(2) puts a restriction that the accumulated income can only be applied to the purposes of the trust and cannot be donated to another charitable institution (or any other purpose) outside the scope of the trust's objects.

So, does the prohibition in Sec 11(2) apply to accumulated income as defined in Explanation 1(2) to Sec 11(1)?

Yes, it does.
The accumulated income as defined under Explanation 1(2) to Section 11(1) falls within the scope of Section 11(2) — meaning this accumulated income cannot be donated outside the trust’s specified charitable activities.

Summary:

• Accumulated income per Explanation 1(2) to Sec 11(1) = income not yet spent, set aside for charitable use.

• Section 11(2) prohibits the trust from donating this accumulated income outside its charitable purpose.

• Thus, accumulated income must be applied only to the trust’s objects; no external donation is allowed from this corpus.